Not the ideal sponsor...

Sen. Joe Lieberman may become an anvil around John McCain's neck. He manages to wind up on the losing side of way too many battles.

An influential coalition of Fortune 500 companies and environmental groups that was formed to support climate-change legislation has splintered over the Lieberman-Warner bill that is headed next week to the Senate floor. [More]

Ag groups have been interested in carbon-trading legislation largely I think of our Pavlovian reaction to the scent of a payment in the wind. This is assuming we are really sequestering some carbon. How the payments are structured and what operational changes would be required are also deal-breakers.

Carbon credits contracts are indeed binding, and producers need to read the fine print to ensure they know what they're getting into, says Gordon Smith, director of EcoLands Program of the Environmental Resource Trust. “Future carbon prices are very uncertain, and all the rules have yet to be written,” he says. “Some producers are willing to take the cash now, while others might think there is a future value and only want a relatively short contract. Most sales are on delivery, and a lot are favoring deals where they can get certain guaranteed payments and share if the price moves higher.

“As carbon sequestration and emission reduction projects are implemented and made public, everyone gets to see how credits are counted,” Smith continues. “Some counting methods are more reliable than others, and the market is sorting out when inexpensive indicators can be used to calculate amounts of carbon credits and when more expensive site-specific measurements are needed. For some aspects of carbon accounting, standard methods are becoming accepted. For other aspects, particularly setting project baselines, no consensus has emerged about what is the proper way to count.” [More]

The larger benefit, however, may be a sharper price difference between biofuel and petroleum prices. Such regulation would cement another advantage for biofuel.

Of course the downside is considerable. A well-designed cap-and-trade system (assuming that's not an oxymoron) would have the same effect as a carbon tax, and we are voracious energy consumers. Hence our input prices would see hefty jumps. Electricity cost would be the big impact.

Farmers may not have the patience or interest to sort out the pluses and minuses, especially when they are pretty foggy. At best, our fairly thin environmental commitment in the area of climate change (I think most are politically biased skeptics) will likely prove to be insufficient to prompt us to take any economic risk or cheerfully change our energy habits.

America's slow approach to carbon-trading is definitely crimping global carbon markets. In fact, the buzz for that effort seems to be dwindling.

Despite all the glitz, however, the future of the industry looks parlous. The World Bank warned that the coming years look leaner. There are already enough projects underway to provide all the offsets needed by the rich countries under the Kyoto treaty, which expires in 2012. The market for voluntary offsets, although growing fast, remains small.

And although America seems more inclined to accept emissions caps these days, it will take a long time to legally mandate them. Besides, there is no guarantee that the world will agree on a replacement to Kyoto, or that a new deal will preserve the CDM. No wonder there was a giddy, fin-de-siècle atmosphere among the stalls at the Expo. Carbon trading has either a very rosy future, or none at all. [More]

Besides, given the recent history of Congress, the likelihood of a compromise that would produce action is optimistic. The safer prediction may be a "solution" that simply hands out permits or credits like Christmas candy, leaving future generations to endure the environmental and economic consequences.

Kinda like that other bill that passed recently...